ITC share price: 5 reasons why this cigarette stock is up today

Shares of ITC Ltd gained 3 per cent in Thursday's trade, even as the sin tax has been raised to 40 per cent from 28 per cent earlier. Analysts noted tht GST rate will now be applicable on maximum retail price (MRP). This is against the transaction value earlier. Besides, ITC is an FMCG giant and brokerages such as Axis Securities said a significant reduction in tax burden due to drop in GST tax to 5 per cent from 18 per cent on items such as sauces, pasta, instant noodles, vegetables, saps and extracts, talcum powder, hair oil and shampoo, toothpaste, among others, may benefit FMCG firms such as ITC. 

ITC may also gain from a reduction GST rate on Namkeen, Bhujia, pre-packaged food items, butter & ghee, among others, to 5 per cent from 12 per cent earlier. 

ITC's paper/stationary segment may benefit from cut in GST to 5 per cent on pencils, paper stationery kits (boxes, pouches, wallets, compendiums containing assorted paper stationery) from 12 per cent at present, Axis Securities said.

"This is the first big reform measure of the government in the current term, which will boost consumer sentiment and provide a consumption fillip. The measure should support growth and encourage longer-term capacity building to drive the economy toward greater self-reliance in a volatile and uncertain global scenario," MOFSL said.

The overall improvement in consumer sentiment is also seen positive for ITC. On Thursday, ITC shares rose 3.45 per cent to hit a high of Rs 425.70 apiece on BSE.

As per MOFSL, the current total taxes is 50-55 per cent of MRP. In case there is no additional duty beyond revised GST rate, it is positive for the cigarette space, MOFSL said. Clarity is awaited, it added.  

JM Financial said the new GST rates of 40 per cent on retail sale price would be a positive development. Currently for ITC, MRP to tax per stick ratio is 47-48 per cent, it estimated. 

"However, we expect government to eventually make tax incidence neutral through changes in excise duty either in Union budget or future GST meetings. While all the GST rate changes will be w.e.f. from Sep’22, current GST structure on Cigarettes & tobacco products will continue till loan (taken to offset to revenue shortage) gets repaid
(likely within this year as per FM)," it noted.